PetroChina Net Sags on Energy Slump

Chinese energy giant PetroChina Co. Ltd. (PTR - Analyst Report) announced third quarter earnings of RMB 30.8 billion or RMB 0.17 per diluted share, compared to RMB 40.1 billion or RMB 0.22 per diluted share in the year-earlier quarter. The year-over-year negative comparison was primarily attributable to lower oil prices and weaker energy demand. PetroChina’s total revenue in the quarter reached RMB 267.7 billion, a decrease of 12.1% from the year-earlier period. 

Upstream 

The company’s upstream segment achieved steady growth in natural gas output during the nine months ended Sep 30, 2009, while oil volumes fell slightly. Crude oil output was 631.2 million barrels, down 3.7% from the same period in 2008. However, marketable natural gas output increased 11.4% year-over-year to 1,524.8 billion cubic feet (Bcf). The average realized crude oil price during the first nine months of 2009 was US$49.06 per barrel, representing a decline of 49.6% from $97.24 per barrel in the corresponding period of the previous year. The average realized natural gas price during the first nine months of 2009 was US$3.40 per thousand cubic feet (Mcf), marginally below the year ago level of US$3.44. 

Refining, Chemicals & Marketing 

PetroChina produced 3.062 million tons of synthetic resin in the first three quarters, up 1.0% from the corresponding period in 2008, besides manufacturing 2.049 million tons of ethylene, up 3.4% from the same period in 2008. The company also produced 53.91 million tons of gasoline, diesel and kerosene during the period, as against 55.6 million tons in the same period of last year. PetroChina’s refinery division processed 607.1 million barrels (MMBbl) during the first three quarters, down 5.5% from the corresponding period in 2008. In marketing operations, the group sold 73.17 million tons of gasoline, diesel and kerosene (an increase of 4.7% from the same period of last year) during January−September 2009. 

Liquidity & Capital Expenditure 

At the end of the first nine months of 2009, PetroChina’s cash balance stood at RMB 131.4 billion. Cash flow from operating activities was RMB 189.8 billion. Capital expenditure for the period reached RMB 152.4 billion, up 21.2% from the year-ago level. 

Outlook 

Going forward, leverage to the fast growing Chinese market and the turnaround in commodity prices are expected to be the main growth drivers for PetroChina. Being one of the two Chinese integrated oil companies, PetroChina is well-positioned to capitalize on these favorable trends. However, we are concerned about the company’s oil production growth prospects, considering its heavy exposure to significantly mature producing areas. Rising costs, downstream-centric assets portfolio, and special levies on domestic crude oil sales also remain an issue. As such, we maintain our Neutral recommendation on PetroChina ADRs.